Chongqing - McKinsey’s latest report forecasts China’s consumption to grow by 2.3% in 2025, with changing consumer trends. While services and tourism thrive, Generation Z in third- and fourth-tier cities shows particularly strong spending optimism.

The flagship store of Pop Mart in Shanghai, China. (Photo/Pop Mart)

According to McKinsey, rural consumers have shown the most notable improvement, thanks to rural revitalization policies. Rural incomes rose 6.6% in 2024, compared to 4.5% for urban residents.

Meanwhile, low-income millennials in first- and second-tier cities have grown more cautious due to job insecurity and rising living costs. In contrast, Generation Z in third- and fourth-tier cities remains the most optimistic group, though facing similar issues, likely due to their fixed daily expenses and lack of major financial burdens like mortgages or car loans.

In 2025, China's Generation Z will officially enter their "thirties." This "digital native" generation has reshaped the consumer market, driving business model innovations with their values.

Cao Hu, CEO of Kotler Marketing Group in China and Singapore, emphasizes, "Consumers don't merely pay for products; they pay for their lives." Generation Z's product demands have shifted from functionality to emotional connection and self-expression.

For example, domestic brands like Li Ning use national cultural confidence to connect with Generation Z, such as with their "China Li-Ning" series. The strategy taps into identity recognition, attracting Generation Z to pay a premium for cultural pride. According to the Young Consumer Insights Survey into Guochao(China-Chic) Brand released by Xinhua and Dewu, 74% of domestic trend consumption is driven by the "90s" and "00s" generations.

Generation Z has also redefined traditional jewelry, such as Van Cleef & Arpels' four-leaf clovers, imbuing them with new meaning; the more four-leaf clovers, the stronger the "buff." Cao explains that this innovation is driven by Generation Z's desire to ease loneliness and seek self-awareness through metaphysical symbols.

The metaphysical economy, projected to grow by 10% annually and reach seven trillion USD by 2025, has taken off in China, with practices like temple blessings and crystal bracelet purchases becoming more popular. According to Navigate Datastory, an E-commerce analysis platform, crystal sales are expected to hit three billion yuan (about 414.5 million U.S. dollars) in 2024, with bracelets seeing a 319.84% year-on-year growth.

Cao believes that the metaphysical economy is value co-creation driven by loneliness. Brands need to integrate their products into the spiritual narratives of Generation Z, like Chow Tai Fook's Constellation Series, which combines constellation designs with jewelry to serve as emotional amulets.

Furthermore, Generation Z's diverse interests span areas such as anime, e-sports, traditional Chinese culture, and camping. Cao noted that brands need to identify their core target audience and expand from there, as Lululemon began with the "super girl" group and expanded to sports enthusiasts through the "sweat with us" value, growing into a global lifestyle brand.

The blind box economy exemplifies how niche products can reach mass markets. By leveraging IP collaborations, Pop Mart exceeded 13 billion yuan in revenue in 2024, with Generation Z making up 32% of its user base. For brands, identifying consumer touchpoints and creating an experience narrative is key to success, said Cao.